As we have all read and heard and seen, real estate is not normal these days. Today’s real estate market is a great value for home buyers. There is currently a 15 month inventory of homes available in Silicon Valley. Life goes on and buyers need to move, or want to upgrade, but they must sell their current homes first, and homes are sitting on the market for a long time.
In addition, foreclosures are at a record high. However, there is this thing called a “Short Sale” that isn’t a foreclosure, and isn’t just listing and selling a house by the owners. It is our experience that most people don’t know what a Short Sale is, so here is the scoop.
Basically, a Short Sale is the sale of a property for less than what is owed on it, Owners do this by obtaining permission from all the secured creditors to complete this kind of transaction, and transfer clear title to a new owner (purchaser). When lenders agree to a Short Sale it means the lender is accepting less than the total amount due, and will transfer clear title to a purchaser. Not all lenders will accept short sales, or discounted payoffs, especially if it would make more financial sense to foreclose.
Short Sales leave the homeowner/borrower free of debt when the sale closes. However, they also leave with no money in hand to move on to the next home – no down payment, and not even money for first and last months rent and security deposit if the seller now has to rent.
Another thing Short Sale Sellers should be aware of is that the IRS will consider debt forgiveness as income. As an example, the owner owes $789,000 on the home. They get agreement from the lender that it can only sell now for $725,000. The home gets put on the market and is sold for $719,000. There is a forgiveness from the borrower(s) for $70,000. The IRS will consider the $70,000 as income in the year of the sale.
Short Sales appear on the owner’s credit history for three years. That’s less than the seven years for a foreclosure, but it still has a long-lasting effect on credit.
There’s lots to do in a Short Sale, but of the utmost importance is that the owner keep in contact with the lender. The owner should also have an experienced real estate agent to represent them in this complicated transaction.
Here’s a couple of links to Short Sale information:
About.com: Short Sales in Real Estate - How to Handle Real Estate Short Sales
eHow.com: How to Do a Short Sale
Real Estate Journal.com: Short Sale May Be an Option WhenMortgage Debt Looms Too Large
Losing your home can be very emotional and most people don’t want to face up to the reality until foreclosure sets in. Our recommendation is to talk to your lender. If you cannot pick up the phone and call the lender, then at the very least, call Team Patereau. We can help you get started on this very difficult project.
